Commercial Real Estate in Crisis: Evidence from Transaction-Level Data
IMF Working Papers, January 27, 2023
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- Commercial Real Estate in Crisis: Evidence from Transaction-Level Data
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Bibliographic details
- Authors: Adrian Alter, Elizabeth M. Mahoney, Cristian Badarinza
- Published: January 27, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400231070.001
Scope and data
- Focus: commercial real estate (CRE) market dynamics in the U.S. over the past two decades, covering major disruptions including the global financial crisis and the Covid-19 pandemic.
- Data: granular transaction-level CRE data used to document crisis episodes and heterogeneity in responses.
Main findings
- Short-run drivers:
- Demand-side local factors play a prominent role in the short run.
- Significant shifts in preferences occur during crisis episodes.
- Long-run dynamics:
- Valuations become more closely linked to macro-financial factors over the long term.
- Quantitative impact of financial conditions:
- A one-standard deviation tightening in financial conditions is associated with a drop of about 3% in CRE prices in the following quarter.
- Sectoral heterogeneity: stronger impact on the retail sector.
- Regional heterogeneity: milder effects in states where household indebtedness is lower.
Methods and approach
- Uses both reduced-form approaches and a structural framework to identify roles of local demand shocks, preference shifts during crises, and macro-financial linkages.
Policy-relevant implications
- Crisis response and monitoring should account for strong local demand-side effects in the short run and shifting preferences across crisis episodes.
- Macro-financial conditions matter for CRE valuations over the long term; financial tightening can produce measurable near-term price declines, with distributional effects across sectors and states.
- Policymakers should consider household indebtedness and sectoral exposure (notably retail) when assessing vulnerability to financial tightening.
Source: IMF Working Paper "Commercial Real Estate in Crisis: Evidence from Transaction-Level Data", authors Adrian Alter, Elizabeth M. Mahoney, Cristian Badarinza; January 27, 2023.
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